4 tax loopholes that encourage soaring executive pay

The tax deduction loophole

Annual taxpayer cost: $9.7 billion

Currently, there is no true cap on the amount of money corporations can deduct from their taxes for executive compensation. In 1993, the law limited executive pay deductions to $1 million, but corporations are still able to exempt performance-based pay. That means companies can pay their CEOs $1 million a year and still tack on performance-based rewards like stock options. And here's the punch line: "If a firm's shares decline in value over time, executives lose nothing," reports the Institute for Policy Studies. Instead, CEOs get options with lower exercise prices during a stock slump, boosting their salaries even further. Because corporations can deduct an unlimited amount of executive pay, it becomes a major tax subsidy. "The more corporations pay their CEO, the lower their tax bill," notes the IPS.